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#2207067 - 02/25/19 11:08 PM Business Purpose What is the loan purpose
LostinRegLand Offline
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Joined: Jun 2014
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WA
I want to make sure I am handling the following scenario correct.

Business purpose loan to a property management company to refinance an existing dwelling that is owned free and clear. The purpose of the funds is to replenish the business account to eventually either buy more rental homes or update existing rental properties. At the time of the refinance other than to replenish the business account the funds are not tagged for a specific use. Currently we are exempting them from HMDA as they are a business purpose loan (1003.3(c)(10)) and the current purpose of the loan is NOT to purchase a new home, refinance an existing lien, or complete home improvement.

I just want to make sure we are handling this correct as we know eventually the money will most likely be used by the business to either purchase or improve a dwelling. Since we don't know at the time of the loan any more than they are replenishing their funds and placing the loan proceeds in their business account do I have this correct?

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#2207174 - 02/26/19 08:29 PM Re: Business Purpose What is the loan purpose LostinRegLand
David Dickinson Offline
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This is a problem of being too vague. If the purpose is to purchase/improve rentals, it is definitely reportable. If it's to replenish funds, it's not reported. I call this an "open door" where examiners/auditors might argue with you. My advise is to "slam the door" - don't leave it open for debate. IOW, if the loan description said the loan was to replenish business operating funds, then it's clear it is not HMDA reportable.

Encourage loan officers to be specific and document loan files so you aren't left guessing.

I would not report this and would make a file comment that said "Not HMDA reportable as proceeds are used to replenish business operating money."
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#2207308 - 02/27/19 07:35 PM Re: Business Purpose What is the loan purpose LostinRegLand
LostinRegLand Offline
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Joined: Jun 2014
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WA
Thank you. The loan documents show replenish funds. My question came more from not what is documented in the file but what we know by knowing our customers the intent to be. So we are handling these correct and I will not change how we are doing things. It is nice to be validated sometimes.

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#2207325 - 02/27/19 08:22 PM Re: Business Purpose What is the loan purpose LostinRegLand
Andy_Z Offline
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To reiterate David's comment, your business loan is reportable when the purpose is to to purchase, refinance or for home improvement and secured by a dwelling. If your app indicates an underlying purpose, that is applicable David's comment of it being vague and screams "fix it." If the lender wrote a narrative for the loan such as is often the case when a loan goes to committee, ensure it isn't "vague" and later requires justification.
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#2207447 - 02/28/19 07:02 PM Re: Business Purpose What is the loan purpose Andy_Z
ccman Offline
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As a follow up question, we have LLCs requesting loans to purchase rental/investment property secured by the personal
residence of the principal member and not the rental/investment property being purchased. How is this reported for HMDA?
Do we report the PR and its census tract? or Do we report the address of the rental/investment property?
Do we report Purchase?

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#2207448 - 02/28/19 07:06 PM Re: Business Purpose What is the loan purpose LostinRegLand
raitchjay Offline
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OK
It's a purchase for HMDA. All of the other HMDA fields you mention tie to the collateral property only.
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#2207449 - 02/28/19 07:10 PM Re: Business Purpose What is the loan purpose LostinRegLand
raitchjay Offline
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Interestingly though, i think you'll be reporting the occupancy as "investment". The LLC can't/doesn't have a primary residence, and occupancy is now reported based on the borrower, not the owner.....so really, any time you have a non-borrower granting collateral, that's going to have to be your choice.
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#2207450 - 02/28/19 07:14 PM Re: Business Purpose What is the loan purpose raitchjay
ccman Offline
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Thank you. This is what bothers me about HMDA being tossed around like a Caesar salad.

I think we reported it wrong. thanks.

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#2207454 - 02/28/19 07:31 PM Re: Business Purpose What is the loan purpose LostinRegLand
raitchjay Offline
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OK
yw
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